House prices, rents record an uptick to boost real estate performance

House prices, rents record an uptick to boost real estate performance

The residential sector continued to boost performance of the real estate sector with house prices and rents having recorded an uptick.

Despite the coronavirus disruptions, analysts say there will be a continued improvement in the sector due to the anticipated increase in the number of building approvals complemented by the planned Ksh.30 million Nairobi County e-Development Permit System upgrade expected to be done by June 2022.

The permit aims to offer faster and efficient construction approvals in Nairobi.

“With the current tough economic time, affordable housing continues to attract demand as people seek to own homes at a time when the country has seen increased unemployment and the subsequent drop in disposable incomes,” says the report by Cytonn Investment.

In the financial year 2020/21, the residential sector recorded increased activities supported by the reopening of the economy in August 2020 leading to a more favourable operating environment which encouraged construction activities and property transactions.

However, the uptake in the residential sector was largely constrained by insufficient access to affordable funding by developers due to insufficient access to credit, infrastructure and high development costs.

High development costs have remained high subject to high land and financing costs.

An average land price per acre within Nairobi Suburbs is currently at Ksh.419.0 million, in comparison to the Satellite Town’s average of Ksh.25.0 million, making it hard for developers to undertake projects without sufficient financial resources.

Land prices in Nairobi and the surrounding counties of Kiambu, Kajiado and Machakos for example, have increased on the back of ongoing recovery from coronavirus hardships that failed to lift home prices.

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According to HassConsult, which conducts a quarterly property pricing index in Kenya, land prices increased 0.2 percent in quarter one, the fastest growth since the country reported the first COVID-19 case in March last year.

Investors who froze investments inland at the peak of the COVID-19 economic crisis are slowly returning to the market on the improved business environment.

However, with the increase in non-performing loans, most of the lenders are expected to pull back or cease new lending to real estate-backed loans due to the risk of default in payment.

“We expect developers to seek alternative sources of financing such as Real Estate Investment Trusts and bonds.”

Data from the Central Bank of Kenya (CBK) shows that the ratio of non-performing loans (NPLs) rose from 12.5 percent to 13.1 percent in June, the highest since August 2007 when it stood at 14.41 percent.

The Ksh.3.5 billion allocation to the Kenya Mortgage Refinance Company (KMRC) in the financial year 2021/22 Budget, is expected to boost mortgage uptake thus encourage buying, building and housing construction activities.

As of Q3 of 2020 real estate and construction’s contribution to Gross Domestic Product (GDP) stood at 16.0 percent, 0.9 percent points increase compared to 15.1 percent recorded in Q2 2020 according to Kenya National Bureau of Statistics Quarterly Gross Domestic Product Report.

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Lawrence Baraza is a prolific writer with competencies in Digital Media, Print, and Broadcast. Baraza is also a Communication Practitioner currently spearheading Digital content on Metropol TV's Digital Desk.

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